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Saturday, October 15, 2016

Financial freedom is the ability not to be limited by money concerns.
With some careful planning, financial freedom may not be as difficult
as it seems. In order to achieve financial freedom, form a plan for
yourself. See where you are now money-wise and find ways to cut back on
frivolous spending. From there, find ways to eliminate unnecessary
expenses. Make some plans for the future by thinking about your
retirement and setting up a fund in case of emergencies.

Forming a Financial Plan

1) Figure out your finances at the moment. The first
step towards financial freedom is determining where you stand now.
You'll have to take stock of your finances and assets to get a sense of
where you need to go from here to have more financial security. Figure
out your net worth, which is essentially an honest assessment of your
current wealth.

Tally up everything you own and its value. This includes obvious
things, like your house and your car, but think outside the box as well.
Do you have any valuable collectables? Do you own any property? Once
you've tallied up your assets, add your annual income, as well as any
additional money you make each year through side work or investments.

List anything that is losing you money, and figure out how much
you're losing per year. This can include credit card debt, your
mortgage, and any loans. Subtract this number from the first number. The
number you have now represents your net worth.

2 ) Track your current spending. You'll want to figure
out how much you're spending each month. This will give you a sense of
where you could cut back on expenses. If you're vigilant about tracking
expenses, you'll be surprised at how much money you spend extraneously.

Keep a small journal for a month and write down where you're
spending your money. Keep track of any bills you pay, monthly rent or
mortgage, insurance payments, and so on.

You should also add any extra expenses. Do you subscribe to any
magazines or online services? Add that to your list. On a day-to-day
basis, write down how much money you spend on things like shopping,
eating out, recreational activities, and so on.

You may be shocked when you tally your expenses by category at the
end of the month. You may be spending a lot more money on things like
eating out and going out for drinks than you anticipated.

3) Make a budget.
Now that you have a sense of where your money is going, develop a
budget. A budget can help prevent you from overspending in certain
areas. Make a strict budget regarding how much you can spend on things
like groceries, eating out, recreational activities, and so on.

Figure out where you could stand to cut back. Say you realized you
spend $350 eating out each month. Do you really need to eat out that
often? You could cut that back to $150 and save $200.

Figure out what things you really value, and what you could stand to
go without. Do you really read your monthly New Yorker or Time Magazine
anymore? If not, maybe you could cut those subscriptions and save some
money.

4) Set a series of financial goals. You'll want to set
some financial goals for yourself. You need to have a clear cut plan for
the future if you want to become financially independent.

Try to think ahead. Where do you want to be in 10 years? 15 years?
How can you go about investing and saving your money to make sure you
can achieve these goals? Keep realistic goals. For example, you can
strive to have a job that pays well and has benefits. You can also
strive to maintain your current standard of living into retirement.

Write down a series of goals, ranked in terms of important. Include
both short term goals ("I want to cut down monthly spending by $300 this
month) and long term goals ("I want to start a retirement fund so I can
retire comfortably in the next 20 years.")

5) Aim to save 10 to 15% of what you earn. When it comes
to saving, you should start right now. A good goal is to set aside 10
to 15% of what you earn each month in savings. Getting into the habit of
saving money can really help your long term financial prospects.

You can do this either on a weekly or monthly basis. If you have
online banking, you can put away a certain amount of each paycheck in
savings. You can also talk to your bank about automatic transfers and
have 10 to 15% of each paycheck automatically transferred to your
savings account each month.

Automatic withdrawals are a good idea. Many people struggle to set aside money and feel tempted to spend everything they have.

Eliminating Expenses

1) Review your bills and cut out unnecessary expenses. Take stock of your monthly bills. Look over all the payments you have each month, and see where there's room to cut back.

You may be able to consolidate some services. For example, maybe you
can put your family's cars under a single insurance policy instead of
paying for three separate policies. In terms of cell phones, family
plans are often cheaper.

Call and ask for a discount or a reduced rate. If you've been a
customer for a long time, you may be able to negotiate a lower rate.
Also, check for any rewards systems or loyalty policies. You may be
missing out on potential savings.

2) Work on eliminating debt.
Debt is a huge burden for many, and in order to become financially
secure you'll need to eliminate as much debt as possible. Make a list of
all the existing debts you have, and figure out how much you can
reasonably pay each month towards eliminating these debts. You may have
to make some sacrifices, like skipping the family vacation this year,
but it'll be worth it to live debt free.

Prioritize your debt. Not all debt is created equal. You should aim
to pay off high interest debts first, as they'll become much more
expensive with time.

If you have to, see if you can find a side job so you'll have money
to exclusively put towards a debt. If you can work an extra 20 hours a
week, even doing freelance work for private clients, you could end up
with a few extra hundred dollars to put towards that mountain of debt.

3) Pay your credit card bill in full each month. You
should make sure you're not overusing your credit card, as this can lead
to big debt. Credit cards accrue interest over time, and having debt
over the long term can damage your credit score. Make sure to pay your
credit card in full each month. Mark when the bill is due on your
calendar.

4) Slash wasteful spending. Money you spend on unneeded
goods and services could go towards savings and debt elimination.
Therefore, it's a good idea to work on cutting out wasteful spending.
Even small tweaks can result in big savings over time, eventually
resulting in financial freedom.

Do you stop for coffee every day on your way to work? Maybe you
could make coffee at home, saving yourself a couple bucks each day.

Think about any services you subscribe to. Do you really use your
Netflix account anymore? Do you watch a lot of cable? Such services
could probably be cut. How often do you use your gym membership?
Couldn't you find ways to work out at home?

Planning for Your Future

1) Set up a retirement fund..
A retirement fund is vital to ensure a stable financial future. It is
never too early to start putting money away for retirement. Take
advantage of any program your employer offers, such as a 401K, and start
putting money away as soon as possible.

If you're unsure if your business offers retirement benefits, make
an appointment with a person in human resources to ask. If you do not
have a job that offers retirement benefits, consider looking for work
elsewhere.

You should also talk to a financial planner at your local bank. Your
bank may provide free consultation, or offer you advice for a small
fee. You can look into starting something like a Roth IRA to save for
retirement.

2) Teach your kids about financial independence.
You want your children to be financially independent. Even if they're
young, start teaching them about how to handle money. Make a trip to the
local bank and have your kids open a savings account. Encourage them to
put money away so they'll see how money grows over time.

You should also talk to your kids about managing money. Tell them how to budget and spend wisely.

Think about setting up a savings account in your local bank where you can put money towards your children's college education.

3) Create an emergency fund..
If you want financial freedom, you do not want an accident or
unforeseen circumstances to push you into debt. In addition to having
solid insurance policies, you should strive to have an emergency fund
just in case anything unexpected goes wrong.

Talk to your bank about opening a separate account to start building
your fund. It's a good idea to have a year's worth of expenses set
aside, but it can take a long time to gain this much capital.

Consider doing automatic transfers to this fund. The 10 to 15%
you're taking out of your paycheck each month for savings could go into
this account.

Saturday, October 1, 2016

If you were to ask 10 people what long-term
investing meant to them, you might get 10 different answers. Some may
say 10 to 20 years, while others may consider five years to be a
long-term investment. Individuals might have a shorter concept of long
term, while institutions may perceive long term to mean a time far out
in the future. This variation in interpretations can lead to variable investment styles. For investors in the stock market, it is a general rule to assume that long-term assets
should not be needed in the three- to five-year range. This provides a
cushion of time to allow for markets to carry through their normal
cycles. However, what's even more important than how you define long
term is how you design the strategy you use to make long-term investments. This means deciding between passive and active management.

Long-Term StrategiesInvestors have different styles of investing, but they can basically be divided into two camps: active management and passive management.
Buy-and-hold strategies - in which the investor may use an active
strategy to select securities or funds but then lock them in to hold
them long term - are generally considered to be passive in nature.

Active ManagementOn the opposite side of the
spectrum, numerous active management techniques allow you to shuffle
assets and allocations around in an attempt to increase overall returns.
There is, however, a strategy that combines a little active management
with the passive style. A simple way to look at this combination of
strategies is to think of a backyard garden. While you may plant
different crops for different results, you will always take the time to
cultivate the crops to ensure a successful harvest. Similarly, a
portfolio can be cultivated along the way without taking on a
time-consuming or potentially risky active strategy.

A good example of this method would be in tax management for taxable investors. For example, a security or fund may have an unrealized tax loss that would benefit the holder in a specific tax year. In this case, it would be advantageous to capture that loss to offset gains by replacing it with a similar asset, as per Tax
rules. Other examples of advantageous transactions include capturing a
gain, reinvesting cash from income and making allocation adjustments
according to age.

TimingWhen it comes to market timing,
there are many people for it and many people against it. The biggest
proponents of market timing are the companies that claim to be able to
successfully time the market. However, while there are firms that have
proved to be successful at timing the market, they tend to move in and
out of the spotlight, while long-term investors like Peter Lynch and Warren Buffett tend to be remembered for their styles.

This is probably one of the most commonly presented charts by proponents of passive investing
and even asset managers (equity mutual funds) who use static
allocation, but manage actively inside that range. What the data
suggests is that timing the market successfully is very difficult
because returns are often concentrated in very short time frames. Also,
if you aren't invested in the market on its top days, it can ruin your
returns because a large portion of gains for the entire year might occur
in one day.

The Bottom LineIf volatility and investors'
emotions were removed completely from the investment process, it is
clear that passive, long-term (20 years or more) investing without any
attempts to time the market would be the superior choice. In reality,
however, just like with a garden, a portfolio can be cultivated without
compromising its passive nature. Historically, there have been some
obvious dramatic turns in the market that have provided opportunities
for investors to cash in or buy in. Taking cues from large updrafts and
downdrafts, one could have significantly increased overall returns, and
as with all opportunities in the past, hindsight is always 20/20.